Businessicy – Warren Buffett seems to be becoming more cautious regarding stocks. Berkshire Hathaway (BRKa.N) has increased its cash reserves to nearly $277 billion. While reducing its investment in Apple (AAPL.O) by approximately 50%. Despite the conglomerate reporting a record high in quarterly operating profit.
The results, disclosed on Saturday, show that the 93-year-old Buffett is one of the most respected investors globally. It might be becoming concerned about the overall U.S. economy or stock market valuations that appear to be excessively high.
These results follow a market downturn that has pushed the Nasdaq (.IXIC) into correction territory and a weak jobs report that has raised concerns about U.S. economic activity and whether the Federal Reserve delayed too long in lowering interest rates.
“Examining Berkshire’s overall situation along with macroeconomic indicators suggests that the company is taking a defensive approach.” noted Cathy Seifert, an analyst at CFRA Research who has a “buy” rating on Berkshire.
As of June 30, Berkshire’s cash reserves had surged to $276.9 billion. Up from a previous record of $189 billion three months prior, primarily due to the sale of $75.5 billion worth of stocks. In the second quarter alone, Berkshire sold around 390 million shares of Apple, in addition to 115 million shares sold from January to March. Despite this, Berkshire retained about 400 million shares valued at $84.2 billion as of June 30.
The second quarter marked the seventh consecutive quarter in which Berkshire sold more stocks than it purchased. Additionally, Berkshire repurchased only $345 million of its own shares. a significant decrease from the $2.57 billion repurchased in the first quarter, and did not repurchase any shares in the first three weeks of July.
“Buffett seems to believe that there are no appealing opportunities in publicly traded stocks, including his own,” said Jim Shanahan, an analyst at Edward Jones with a “hold” rating on Berkshire. “This raises concerns about his view on the market and the economy.”
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Berkshire has committed to maintaining a minimum cash reserve of $30 billion. But it often allows this amount to grow when it cannot find attractive acquisition opportunities at reasonable prices. Since mid-July, Berkshire has also divested over $3.8 billion worth of shares in Bank of America (BAC.N), its second-largest stock investment.
“We would like to deploy the cash, but we will only do so if we believe it involves minimal risk and has the potential for significant returns.” Buffett remarked during Berkshire’s annual meeting on May 4, referring to the company’s cash reserves.
Buffett indicated that Apple is expected to remain Berkshire’s largest stock investment. But the sales were sensible given the likely increase in the 21% federal tax rate on the gains. These sales occurred only two years after Buffett referred to Apple as one of Berkshire’s “four giants,” alongside its insurance businesses, BNSF, and Berkshire Hathaway Energy.
BNSF Railroad saw a 3% decline in profit due to increased provisions for lawsuits. Despite lower operating costs and higher shipments of consumer and agricultural products. Similarly, Berkshire Hathaway Energy experienced a 17% drop in profit, impacted by lawsuits related to the 2020 Oregon wildfires. The utility has set aside $2.7 billion for wildfire-related losses as of June 30, up from $2.4 billion three months earlier, with potential for further increases.
Berkshire’s Class A shares closed at $641,435 on Friday, reflecting an 18% increase for the year, compared to a 12% gain in the Standard & Poor’s 500 (.SPX). Buffett has led Berkshire Hathaway since 1965, and Vice Chairman Greg Abel, 62, is anticipated to succeed him as CEO.
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